Joint VentureLegal Advice

Business Contract – Procedure & Application

This article will provide information on the advantages of choosing a Business contract in the form of a Corporate Entity, Limited Liability Partnership, or a Contractual Agreement.

Why We Choose a Business contract?

A business contract is a great way to collaborate and gain the advantage of the various skills of the partnering party that are lacking in your organisation.  Some benefits of Business agreement are cost minimisation, cultural alignment, removal of legal hurdles, liability minimisation, shared rewards and risks, and asset sharing leading to cost reduction. India is a great venue for those foreign entities who wish to set up their works in India in such sectors where 100 percent FDI is not allowed.  Let us look at why entities would we choose a Business contract.

Foreign investors prefer to create a contract in company type of corporate structure in India when they want to conduct business here. A business agreement provides foreign investors access to the various existing distribution channels, contacts, and financial resources of the entity they are partnering with in India. The regulation of the corporate business is made under two acts: The Limited Liability Partnership Act, 2008 and the Companies Act, 2013.

Application for Business contract

It is extremely advantageous for foreign entities to partner with entities in India for various reasons. In a business contract, the foreign partners get immediate access to all the different business contacts that the Indian Partner has, enabling the business’s operations to be up and happening from the very first day.  The know-how of the Indian partner is accessed by the foreign partner, as are the financial resources, skills, and experience of the Indian partner. The established marketing and distribution channels the Indian partner has are accessible to the foreign partner.  Furthermore, the liabilities, as well as the risks of the two parties, will now be managed jointly, limiting the exposure of the foreign partner.  Mainly, partnering with an Indian entity allows the foreign entity the ease of setting up its operations in India.

There are several business contract and various ways of forming business agreement in India.  Read on to know more about them. 

In India, one can constitute two types of business contract:

  • Equity Venture
  • Contractual Venture

Equity Ventures: here, two or more parties or companies have an agreement for creating a new third entity in which both the parties agree that they will contribute towards the share capital and give money and other resources to the company’s assets as their contribution. Such an agreement is apt for a long-term business contract.

Contractual Ventures: here, two parties collaborate based on a contract or agreement. This type of business agreement is appropriate for fulfilling a limited-time, temporary contract.

In India, the following types of JV can be entered into:

  • Incorporated entities, such as Company or Limited Liability Partnership
  • Unincorporated entities, such as contractual agreements or partnership

Application form of Corporate Entity for Business contract

There are two ways of creating a Company form of joint venture registration in India:

  • Incorporating a company with both parties/companies holding shares in the new company
  • Collaborating with the company’s promoters in the existing company itself

The incorporation of a new company is the better of the two options because it gives both parties/companies to form the structure of the new entity based on their specific requirement.

The formation of a limited liability partnership as part of a Business contract

There are two ways to apply a business contract as a Limited Liability Partnership:

  • Incorporating a new LLP with the two parties/companies holding capital in it
  • Transferring the stake of one partner of the current LLP to the JV partner

With an LLP, those parties creating the business contract will incorporate a legal entity based on the Limited Liability Partnership Act, 2008. It could be done by creating an LLP by the parties of the business contract or by transferring the stakes of one partner of an existing LLP to the business agreement partner.  In an LLP firm, there must be at least two designated partners, of which one must be a resident of India.

You can create a partnership contract under the Partnership Act, 1932. In such a Contract, there will be aspects of a contractual venture and a corporate the agreement. The typical business structure in a partnership business contract is defined by the relationship of the persons agreeing on sharing the business profits, which is managed by them all or by any of them acting on behalf of them all. You cannot set up a Partnership firm for a contract if you are a foreign resident in India; nevertheless, there are exceptions for NRIs or persons of Indian origin.

In the case of a business contract as a strategic alliance, the invoices agree to collaborate as independent contractors instead of shareholders in a company or a legal partnership. These business agreement specifies the obligations, duties, and rights of partners and third parties. With the contract binding, the other can seek legal redresses. 

Formalization of Business contract through contractual agreements

If the business contract is through a contractual agreement, the parties’ collaboration is with independent parties as opposed to with partners or shareholders. In such a case, the agreement or the contract is the factor that binds the parties, and it enumerates all the rights, duties, responsibilities, obligations, etc., for both parties and third parties.

In the agreement, the duration of the legal relationship will also be specified.  This shall be binding on both signing parties. If there is a breach of the agreement terms or a default, either party can take the other to court. 

Conclusion

Applying a business contract between an Indian entity and a foreign entity is of great advantage for the foreign entity.  This is a reason why so many such contract are coming up. They are being formed under the Limited Liability Partnership Act, 2008 and the Companies Act, 2013. Before entering a contract, you must do your due diligence and plug all loopholes in the agreement.  Also, check out all the types of business contract possible in India and select the one that most suits your line of work, the task to be implemented, and other specific requirements.

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